Tax Type
Retail Sales and Use Tax
Description
Production and sale of audio tapes
Topic
Exemptions
Taxability of Persons and Transactions
Date Issued
11-03-1986
November 3, 1986
Re: §58.1-1821 Application/Sales and Use Tax
Dear******************
This will reply to your letter of July 1, 1986. in which you submit an application for correction of sales and use tax assessed to the ************** as the result of a recent audit.
Inasmuch as there has been considerable confusion in the recording industry due to conflicting information, I find basis in this instance for waiving that portion of the assessment that relates to the purchase of tapes from ********** and *****************. For the future, however, you will be expected to remit the tax on all purchases of recordings (except those for resale), including recordings or rerecordings of live performances.
Although transactions involving the production and sale of audio tapes entail a substantial service element, the transactions do not enjoy the exemption found at §53.1-608.2 of the Code of Virginia for "personal service transactions which involve sales as inconsequential elements for which no separate charges are made."
As stated in Virginia Regulation 630-10-97.1, "[i]n order to determine whether a particular transaction which involves both the rendering of a service and the provision of tangible personal property constitutes an exempt service or a taxable retail sale, the "true object" of the transaction must be examined." In short, where the true object of the customer is to obtain the services of the seller. then the transaction is exempt, but if the object is to obtain the property produced as the result of services, the transaction is taxable. In this case, it is apparent that your client was extremely interested in obtaining the specialized services of ***** and ***** however, your client would not have sought out such recording services were it not for the finished audio tapes produced. In an analogous situation involving the production and sale of television commercials, the Virginia Supreme Court opined in WTAR Radio-TV Corporation v. Commonwealth, 217 Va. 877, 234 S.E.2d 245 (1977):
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- Applying the "true object" test to this case, we believe that parties purchasing commercial advertisements...were more interested in the final product than in the service that produced it. To be sure, the customer obtained the technical expertise of the production personnel, but some service is involved in the production of every article that is sold. However, the primary object and concern of the advertisers was to obtain a finished film with its special alignment of molecules and chemicals which produce the images that advertise the customer's products when put on the air. Hence, we hold that the true object of the buyer of the advertisement was not the service per se, but the end product produced by the service.
- Applying the "true object" test to this case, we believe that parties purchasing commercial advertisements...were more interested in the final product than in the service that produced it. To be sure, the customer obtained the technical expertise of the production personnel, but some service is involved in the production of every article that is sold. However, the primary object and concern of the advertisers was to obtain a finished film with its special alignment of molecules and chemicals which produce the images that advertise the customer's products when put on the air. Hence, we hold that the true object of the buyer of the advertisement was not the service per se, but the end product produced by the service.
Based upon the foregoing, the assessment issued by the department will be revised as soon as practicable to delete purchases of audio tapes from********and ****** If any further questions or concerns arise relative to the purchase of audio tapes. please do not hesitate to contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner